Atlanta Fed GDPNow Forecast for Q1 Drops to Almost Zero

I hope the forecasting model is broken.

The Atlanta Fed’s GDPNow forecast for first-quarter 2017 economic growth in the US dropped further, this time to 0.2%. This seasonally adjusted “annual rate” of GDP growth means that if the economy grows like this for four quarters in a row, it would grow only 0.2% for the entire year.

Economic growth in 2016 was 1.6%, which matched 2011 as the worst year since the Great Recession. So the current forecast of Q1 GDP growth of 0.2% annual rate looks ugly. I just hope that the model is broken and that some internal gears have jammed.

The forecast is down from the already ugly 0.5% at the last publication of the GDPNow forecast on April 18.

As the GDPNow model picks up data for the quarter, it gets more accurate in predicting GDP growth to be reported by the Bureau of Economic Analysis in its first estimate for that quarter. With the last batches of March data piling up, the GDPNow forecast is now just a hair above zero. This has been a steep plunge from 2.5% at the end of February to my red marks today:

Since the last report on April 18, new data points have arrived and have left their marks:

Existing-home sales (April 21). No change in the forecast.

New-home sales (April 25). No change in the forecast.

Retail trade revision (April 25) pushed the forecast for consumer spending from already weak growth of 0.3% to near stagnation of 0.1%.

Durable goods manufacturing (reported today by Census Bureau) and the light trucks sales to businesses (reported by BEA on April 25) caused the forecast of real equipment investment growth to rise from 5.5% to 6.6%.

Wholesale and retail inventories (today) caused the forecast of the contribution of inventory investment to GDP to fall deeper into the negative (from -0.76 percentage points before) to -1.11 percentage points today.

This is the worst GDPNow forecast since Q1 2015, when the Atlanta Fed model nailed it, forecasting 0.1% GDP growth. The official first estimate GDP growth by the BEA then came in at 0.2%. Most blue chip forecasts had completely missed the downturn, with the Blue Chip consensus estimate, as cited by the Atlanta Fed at the time, pegging it at 1.4%.

Ironically, this is about where today’s Blue Chip consensus estimate is once again (the dark blue line in the chart above).

That GDP release by the BEA on April 29, 2015, shocked economists, and they blamed it on the weather – the polar vortices blowing across much of the country. Though everyone could see the weather, it didn’t make it into their forecasts. But the Atlanta Fed model, though it too gets it wrong plenty of times, had an uncanny sense of accuracy when no one else seemed to believe it.

So the hope that some internal gears might be jamming up the forecasting model this time around and that Q1 2017 GDP growth will actually come out much better may be wishful thinking.

As so many times, Private Equity firms are in the thick of it. Read…  I’m in Awe of How Fast Brick-and-Mortar Retail is Melting Down




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  45 comments for “Atlanta Fed GDPNow Forecast for Q1 Drops to Almost Zero

  1. RD Blakeslee
    Apr 27, 2017 at 11:37 am

    “I just hope that the model is broken and that some internal gears have jammed.”

    Don’t say that!

    The same folks who are true believers in climate change models will call you a “denier”

    • alex in san jose
      Apr 27, 2017 at 6:22 pm

      Those of us who think climate change is a real thing actually hope the models are false, because if they’re dead-on, which so far, depressingly, they are, we’re in for a world of shit.

      • Winston
        Apr 28, 2017 at 9:37 am

        Verification, Validation, and Confirmation of
        Numerical Models in the Earth Sciences
        Naomi Oreskes; Kristin Shrader-Frechette; Kenneth Belitz
        Science, New Series, Vol. 263, No. 5147. (Feb. 4, 1994), pp. 641-646

        Excerpts:

        Verification and validation of numerical models of natural systems is impossible. This is because natural systems are never closed and because model results are always non-unique. Models can be confirmed by the demonstration of agreement between observation and prediction, but confirmation is inherently partial. Complete confirmation is logically precluded by the fallacy of affirming the consequent and by incomplete access to natural phenomena. Models can only be evaluated in relative terms, and their predictive value is always open to question. The primary value of models is heuristic.

        Numerical models are increasingly being used in the public arena, in some cases to justify highly controversial decisions. Therefore, the implication of truth is a serious matter. The terms verification and validation are now being used by scientists in ways that are contradictory and misleading. In the earth sciences-hydrology, geochemistry, meteorology, and oceanography-numerical models always represent complex open systems in which the operative processes are incompletely understood and the required empirical input data are incompletely known. Such models can never be verified.

      • Winston
        Apr 28, 2017 at 10:02 am

        For a short video on how economic models are most certainly even less reliable in their projections than even climate models with their insufficient data points and incomplete understanding of the mechanisms involved, see the short YouTube video “Minsky Introduction Video”.

        I won’t even go into the garbage economic theory upon which those economic models are based, a dogma which is not seriously challenged because it provides those actually “in charge” with what they want – politicians want the ability to promise more than they can deliver from tax receipts and since the garbage theory basically claims “you can borrow your way to prosperity”…; and the financial oligarchy loves the wealth transfer enabled by bubbles, a two steps forward (asset inflation bubble), one step back (bust, but with GREAT bargains on new asset purchases) ratchet effect.

        Also read “The Uncertainty Of Economics: Exploring The Dismal Science” by Andrew Beattie. It points out some flaws in economic model projections identical to the Science paper I excerpted above on the modelling of natural systems.

        For a clear indication about economic model projection accuracy, search for the hilarious graph of IMF projections about world econmic growth. One look at that should make anyone think, “Why does anyone even listen to these clowns?”

        “In his book, ‘Thinking Fast and Slow’, Princeton University Nobel Laureate, Daniel Kahneman, introduces us to the principle of Theory Induced Blindness – the adherence to a vulnerable belief, even though a counterexample may exist, about how something works that prevents you from seeing how it REALLY works. So once you have accepted a theory, it is extraordinarily difficult to notice its flaws, trusting instead the community of experts who have already accepted it.”

        It’s time to stop this pretense – economics is not science. Not even close. The Nobel prize for economics remains separate from the main prizes, and so it should, as the namesake was a scientist and economics is categorically not. I suggest the reading of tea leaves as a more accurate predictor.

  2. DK
    Apr 27, 2017 at 11:39 am

    What’s their track record on forecasts ?

  3. OutLookingIn
    Apr 27, 2017 at 11:40 am

    When attempting to calculate the gross domestic product of a nation using an economic model, the sheer number of variables along with natural volatility via human interaction, is an act of futility. Like playing a game of horse shoes, or throwing a grenade, you may come close and that’s just “good enough”, but still well off the mark.

    A projected GDP number of two tenths of one percent (0.2%) is nothing more than a math rounding error, within most likely a range of plus/minus 1 to 2 percent. Yet all the financial “boffins” will pay extra special attention to this number and prognosticate to no end as to the significants of it.

    • akiddy111
      Apr 27, 2017 at 12:10 pm

      I agree. But as Wolf wrote, GDP for 2016 was 1.6%. When you have 0.2% on the back of that 2016 number, it get’s to be more relevant.

      I would like to get a sense of what Q2 is shaping up to be. Normally GDP NOW estimates start coming out early in month 2 of the Q.

    • Maximus Minimus
      Apr 27, 2017 at 12:37 pm

      You are right. GDP is one of the dumbest numbers out there.
      Does it account for total debt outstanding? No.
      Does it account for super low interest rates to save it from collapse? No.
      Does it account for increased pension liabilities? No.

      At least we can trust the CPI.

  4. Kumar
    Apr 27, 2017 at 11:41 am

    Just playing devils advocate here…

    How reliable is this forecast, if it fluctuates so much within a 2 month period? It seems quite possible that it may even go up, after they get few more data points.

    • Apr 27, 2017 at 1:29 pm

      It’s strictly data-based. It goes with the data as the data comes in. It doesn’t use human interpretation of the data inputs.

      We’ll find out tomorrow at 8:30 Eastern Time when the BEA releases its first estimate of GDP. That’s the number the GDPNow model attempts to forecast.

  5. akiddy111
    Apr 27, 2017 at 11:48 am

    “Durable goods manufacturing (reported today by Census Bureau) and the light trucks sales to businesses (reported by BEA on April 25) caused the forecast of real equipment investment growth to rise from 5.5% to 6.6%.”
    …..

    Just read the Durable Goods report from Census :

    Automotive Vehicles And Parts :

    Jan-March 2016 total = $167660 m

    Jan-March 2017 total = $169110 m

    YOY growth for Q1 = 0.9%.

    Add in record selling incentives and the near future for the Automotive Industry seems precarious.

  6. akiddy111
    Apr 27, 2017 at 11:58 am

    Chain Store owners, Mall REIT’s, Restaurants, Auto dealers, Commercial RE, Multi Family Developers and landlords, recent Condo buyers, Oil industry Bond holders…

    Gosh, I don’t know which space looks most ominous.

    • Jon
      Apr 27, 2017 at 1:44 pm

      I thought the same few years back thinking real estate is too expensive.
      My friends who bought couple of years back are not sitting pretty at 30%+ appreciation and are cashing out…

      Fed can’t and wont drop the rates but there is a high likelihood of NIRP..

      • Lee
        Apr 27, 2017 at 5:32 pm

        Nah, the Fed is going to increase rates at least three more times this year as the economy is doing great……….for some.

        Who cares what the numbers say.

        A bunch of nice presents the zero left for Trump so he can get the blame.

        Of course in reality not much of the first year of a President’s term in office can be blamed on him.

        Fake news, fake numbers, and fake blame.

    • Gerald Stehura
      Apr 28, 2017 at 9:13 am

      Climate Change!

  7. economicminor
    Apr 27, 2017 at 12:42 pm

    JPM Cuts Q1 GDP Forecast To Just 0.3% http://www.zerohedge.com/news/2017-04-27/jpm-cuts-q1-gdp-forecast-just-03

    With the news about autos and retail this seems like it is even overly optimistic.

  8. Gee
    Apr 27, 2017 at 12:46 pm

    The truly asburd thing is that the NYFed’s estimate is so far off from this. Fed credibility anyone?

    Which one of these Fed’s is the shameless/incompetent/propagandistic one? Only the shadow knows…

    • Gershon
      Apr 27, 2017 at 5:41 pm

      “Fed” and “credibility” haven’t belonged in the same sentence since this criminal private banking cartel’s surreptitious 1913 creation by the robber barons of the era.

      • Dan Romig
        Apr 28, 2017 at 6:14 am

        As our 28th president, Woodrow Wilson remarked:
        “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know there is a power somewhere, so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it.”

        Of course, the Fed was created under his Presidentship.

  9. Edward
    Apr 27, 2017 at 1:00 pm

    And the NY Fed NowCast model at 2.7% for 2017Q1 again disagrees with the Atlanta Fed NowCast (see:https://www.newyorkfed.org/research/policy/nowcast). Makes me wish the two groups of modelers would get together and hash things out. And for those who say that the stock market price growth must, in the long term, approximate GDP growth, just how long is long-term? The two growths have spread apart for quite some time. Perhaps the difference is mostly explained by large international American companies hitching a ride on faster growth in Asia.

    • Apr 27, 2017 at 1:36 pm

      We shall find out tomorrow which forecast is the most off target.

  10. economicminor
    Apr 27, 2017 at 1:06 pm

    Seems to me we have an economy that is doing really poorly. All the excesses of the last 8 years have caused so much additional mal investment. It is like a swimmer with a gold bar.. Hold onto the gold and drown. Let loose and you may survive but will then struggle to have enough to eat. How long can you swim with that bar before you are just to tired and drown anyway? gold bar in this case = unproductive debt.

    The Trump administration seems to want inflation, more unproductive debt. Which doesn’t look like we aren’t getting with a 0>0.3% GDP. The Trump tax and spending plans IF enacted would almost guarantee inflation..

    Historically there has been more inflation when the Republicans were in power. There are some in both parties that want inflation while the FED doesn’t want more than 2%.

    If the tax cuts go thru and the spending increases on infrastructure and if the border tax actually happens, inflation will go up.. Putting the FED in a position to have to raise rates or risking inflation getting out of control..

    I still think that any inflation that is not wage inflation, which historically is always behind all other inflation will crash the system. The amount of personal debt plus a good dose of inflation and retail will just fail and more companies will close up shop.. And as that happens the bond losses will reinforce the raise in interest rates… And….

    But then who knows what’s next? Will we have any agreements? Will the government shut down? Will??????? the Democrats capitulate?

    • Wilbur58
      Apr 27, 2017 at 3:01 pm

      Great comment, economicminor.

      Question: Are we not already in a period of very high inflation of the FIRE sector? Mortgages, health insurance, and more?

      Yes, a can of beans is still under a dollar. But what use is that when living costs are way up?

  11. unit472
    Apr 27, 2017 at 1:09 pm

    As Gail Tverberg and others have noted, our economy is not unlike an airplane or bicycle. Losing forward speed risks a stall or loss of control so, rather than just slowing down they crash.

    Absent some additional ‘thrust’ this sucker is going down!

  12. Wilbur58
    Apr 27, 2017 at 1:58 pm

    Two things:

    1) Why do we even consider GDP when it includes a significant amount of existing assets being exchanged? GDP should only include new goods and services.

    2) I still wish no one would say “The Fed”, but rather, the banks. The Fed is entirely run by Goldman, Citi, Chase, etc. Can we please stop pretending otherwise so that no one is confused?

    (Yes, I’m aware that sinecures like Greenspan, Bernanke, and Yellen get appointed by the executive.)

    • two beers
      Apr 27, 2017 at 10:53 pm

      I agree. Treating the Fed as a government agency is a great deception that enables the banks to get away with their crimes while ignorant people blame the gummint. The banks commit crimes with impunity. The gummint is guilty of the sin of omission by failing to regulate and prosecute the banksters.

      Neo-liberalism is a deeply-rooted pathology.

      • Dan Romig
        Apr 28, 2017 at 6:25 am

        As I have commented on WS previously, President Obama’s second Attorney General, Loretta Lynch, sat on the Federal Reserve Bank of New York’s Board of Directors from 2003 to 2005. Tim Geithner was President of the Board at that time.

        Jamie Dimon’s JPMorgan Chase committed multiple felonies, but the nation’s ‘Top Cop’ was happy to collect large, but trivial fines instead of issuing criminal indictments.

  13. Goldfinger
    Apr 27, 2017 at 3:24 pm

    I smell war. It’s the only solution to a declining and negative GDP. If you factor in real inflation GDP is negative and has been since 2007….heck probably going back to 2000. Nasdaq hit 5000 in early 2000. It now stands 20% higher after 17 years. The DOW and SP have done better but still far off from the performance of Gold which was $272 when the highs were hit in 2000.

    • harvey
      Apr 28, 2017 at 4:06 pm

      Bingo! I know people that works in that sector and it is the only sector that is booming right now! A republican congress alone with a republican president? Can you smell neo cons? Get ready for some weaponized Keynesianism!

  14. Rates
    Apr 27, 2017 at 3:36 pm

    I am guessing it doesn’t matter which number is right. The “message” will be tailored towards the higher number.

    Another big blowout by Google. It appears the economy consists of people clicking things.

    • Guido
      Apr 27, 2017 at 4:09 pm

      “Another big blowout by Google. It appears the economy consists of people clicking things.”

      I think Google and FB have taken a leaf out of the Fed’s book. AFAIK, there is no way to confirm if the clicks are legit. A couple of companies apparently track these clicks (I don’t know how one can track these things anyway unless the website in question tells you — so my guess is that this data also comes from the websites). Even if such stats were available, one can always have robo-clickers.

      • Gershon
        Apr 27, 2017 at 4:12 pm

        Insane P/Es are going to get even more ludicrous.

        Heckova job, Ben & Janet.

        • Mickey
          Apr 27, 2017 at 8:28 pm

          pe’s?. time for double NON GAAP earnings.

          there is ananswer for everything, til there is not.

      • Goldfinger
        Apr 28, 2017 at 2:35 am

        I can’t tell you as fact that many of the clicks are fake. I ran a program several years ago do the major record labels where we used bots and an algorithm to click at will and rack up revenues. Facebook is by far the worst case as the majority of the ads they run are never viewed by the blind eyes of its users…they just pass by their field of view unseen but counted and racked up as revenue. It is one massive advertising Ponzi scheme. But then again, Facebook is not really designed to sell ads, it was designed to benefit the security services at NSA and CIA.

  15. Gershon
    Apr 27, 2017 at 4:11 pm

    But…but…that sincere young woman on CNBC said the economy was “surging.”

  16. Gershon
    Apr 27, 2017 at 5:22 pm

    Looks to me like the last of the retail investor marks have been lured into the Wall Street pump & dump, and now it’s time for Da Boyz to go massively short, then Goldman Sachs can order it’s “former” employees Yellen, Draghi, and Carney to hike interest rates sharply in June & let the Great Muppet Slaughter of 2017 commence.

  17. Petunia
    Apr 27, 2017 at 5:26 pm

    I don’t think the GDP numbers matter too much because there is too much fragmentation in the economy. Good or bad numbers are only seen through the lens of local economies.

    Congressman Suozzi from NY, said the other day on Cspan, that if you dissect upstate NY from downstate NY at the Rockland/Putnam county lines, upstate NY would be the poorest state in America. And I suppose that makes downstate NY the richest. Upstate they would only believe a bad number and downstate they would believe the good number.

  18. Mike Farrar
    Apr 27, 2017 at 8:19 pm

    The true GDP should be -3% to -4% if you figure in the fleecing the American middle class has taken on Obama Care. Medical insurance rates have tripled in the last 3 years because of this monstrosity of government mismanagement and the total lack of lowering costs of treatment and pharmaceuticals. What do you expect when you let the health insurance companies write the Affordable Health Care Act. Anything the US Govt. touches, turns to crap…

    • two beers
      Apr 27, 2017 at 10:48 pm

      Correction: Everything Wall St touches turns to crap. Once upon a time, the US Govt enforced regulations that limited Wall St’s ability to turn everything to crap. Then Wall St took control of the government (abetted by attitudes like yours), and well, here we are.

  19. Kreditanstalt
    Apr 27, 2017 at 9:22 pm

    “GDP” is a meaningless, concocted number in an economy in which money, debt and credit is expanding constantly.

    I’d wager that, if that expansion were netted out, there hasn’t been any sound, economically justifiable expansion for many years.

    Perhaps “GDP” should be renamed ‘CHEAP MONEY-INDUCED CAPITAL MISALLOCATION’.

    • two beers
      Apr 27, 2017 at 10:46 pm

      Correction: GDP is meaningless when all the gains to productivity (which is what GDP measures) is accumulated by 1% of the population.

  20. Matt P
    Apr 28, 2017 at 8:54 am

    Looks like this pretty much nailed it

  21. Gershon
    Apr 28, 2017 at 9:05 am

    “Core inflation,” per our Soviet-style official data, exceeds the Fed’s “goal” of 2%. Meanwhile, in the real world, the 99% are seeing their purchasing power relentlessly eroded by rising prices on life’s essentials like medical care and housing. But now Yellen and her coterie of counterfeiters and racketeers at the Fed will have to come up with some inventive new excuse to go on defrauding savers and the prudent out of interest income while printing up new trillions in “stimulus” to further debase our purchasing power.

  22. harvey
    Apr 28, 2017 at 4:13 pm

    Historically, there is only one answer to a slowing economy when the republicans are in power with a republican president, get ready to be deployed with our bombs young men, the biggest profit machine is getting geared up as we speak right now.

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